Hitachi Formulates its Medium-term Business Plan, the "i.e. HITACHI Plan"
Nov 19, 1999 09:26 AM
-Will use knowledge and information technology to become customers' best solutions partner-
Tokyo, Japan, November 19, 1999 --- Hitachi, Ltd.(TSE:6501) today announced that it has prepared the i.e. HITACHI * Plan, a medium-term business plan aimed at using the Company's wealth of knowledge and information technology (IT) as a basis for utilizing the Internet to become a best solutions partner, as reflected in President Etsuhiko Shoyama's message to all Hitachi's stakeholders: shareholders, customers, employees, and local communities. A medium-term plan that has been under study since Mr. Shoyama became president on April 1 this year, i.e. HITACHI addresses the period up to fiscal 2002, ending March 2003.
* The “i.e.” of i.e. HITACHI stands for information electronics, the driving force that will be used to transform Hitachi into a best solutions partner.
1. Main points of the i.e. HITACHI Plan
(1) Transformation from a manufacturing company to a solutions-providing company: Best solutions partner
In accordance with the i.e. HITACHI Plan, Hitachi will undergo a qualitative and structural change to being a trusted solutions enterprise that utilizes its manufacture’s values such as high quality and productivity as it helps customers through the provision of services and systems. The spread of the Internet and the convergence of information systems and telecommunications are bringing about the age of cyberspace in which individuals, companies, and communities are linked by networks. This is dramatically increasing the efficiency and intelligence of a whole range of social infrastructures, including financial systems, electric power systems, and traffic and transportation systems. Amid these changes, Hitachi's aim is to be a partner to a broad spectrum of customers in sectors that include business as well as the home, and to be the company that these customers trust above all others in the world to create value for them. That is what "best solutions partner" signifies. These efforts will be backed up by the broad-based business experience, powerful, comprehensive technological and financial capabilities, and high quality and reliability of the entire Hitachi Group, which includes 36 companies listed on stock exchanges.
With this serving as the driving force, Hitachi is strengthening its services business to expand sales in this sector of operations to 2.6 trillion yen by 2003, thereby exceeding the initial sales target. In particular, Hitachi will promote services vigorously in new sectors, such as the environment, life science, broadcasting and telecommunications, and financial services, with separately established companies and new corporate entities.
(2) Expansion of Internet-based solutions businesses
The Internet-based provision of diversified solutions for corporate and individual customers will form a core business. To that end, by 2003 Hitachi will invest some 50 billion yen, establish a company which provides various network-based services, and use advanced encryption, electronic watermarks and other such technologies to implement highly reliable network services, and endeavor to achieve the rapid dissemination of its Internet business among customers, under the consolidated brand of the Hitachi Group.
(3) Prioritizing management resources to achieve a high-profit structure
Hitachi's objective is to improve its asset and capital efficiency over the medium-to-long term and to form itself into a corporate entity that is able to consistently ensure the securing of high profits. To achieve this, with information systems and electronics as the core of a profit-oriented business structure, management resources will be prioritized. Specifically, investments will be made into research and development as well as plant and equipment in the solutions and leading-edge devices business sectors on a strictly prioritized basis. Furthermore, at an early stage in the plan's implementation, some 300 billion yen will be committed to acquisitions, equity participations and alliances. Of this sum, 80% or more will be concentrated on sectors relating to information systems with the aim of strengthening system integration (SI) operations.
(4) Building a business foundation based on strategic use of knowledge and information technology
Hitachi will move ahead to lay a foundation as a knowledge enterprise able to provide advanced solutions that go beyond industry divisions and formats and, for creating new businesses, able to comprehensively utilize, as its assets, outstanding technology and extensive experience and expertise, both internal and external. In President Shoyama's "Project 21" plan for establishing a high-profit structure and implementing management reforms, building this infrastructure is an important topic. Thus, Hitachi will make efforts to use total supply chain management (TSCM) to initiate radical reforms of processes and systems, strengthen its intellectual property strategy and expand the funding of venture businesses, and some 200 billion yen will be invested in IT by 2002.
(5) Introduction of results-based evaluation and remuneration system
For achieving the goals of the i.e. HITACHI Plan, a set of guidelines entitled "HITACHI VALUE" will be formulated to clearly define the values and standards of conduct that should be shared by all managers. This will also form the basis for the introduction of a personnel system for managers that is based on ability, not seniority. The introduction of a stock-option system will also be studied to strengthen the emphasis on the shareholders’ perspective.
2. i.e. HITACHI Plan targets (on a consolidated basis)
Sales will be increased by approximately 6% a year from fiscal 1999, ending March 2000, through fiscal 2002, ending March 2003. The share accounted for by the Information Systems & Electronics segment, and Services segment including financial services will be increased.
Amid the ongoing qualitative and structural reforms to reshape Hitachi as a solutions enterprise, profits will be increased by a significant amount, especially in the Information Systems & Electronics segment.
The structural transformation of business operations will be promoted, so that in fiscal 2002 sales by the information-related sectors will account for 70% of total sales and the services business for 25%. Overseas operations are being expanded to achieve a long-term target overseas sales ratio of 50%.
Hitachi views cash flow as an important indicator. Hitachi is endeavoring to implement TSCM and the like to vigorously improve management efficiency throughout the organization and thereby improve the total assets turnover ratio. By speeding up the turnover of inventory assets, accounts receivable and other such items, the free-cash flow will go into the black in fiscal 2001.
3. Specifics of the i.e. HITACHI Plan
3-1: Internet-based strengthening of service business
Hitachi considers its strength to be its ability to provide solutions backed up by its abundant wealth of experience, knowledge and technology. To mobilize the experience and knowledge of its total workforce, 200 billion yen will be spent on IT to build systems that contribute to advanced knowledge management.
Also, amid the rapid expansion of the Internet, the services business will be strengthened by providing a variety of Business to Business (B to B) and Business to Consumer (B to C) solutions in which the emphasis will be on high reliability. On a consolidated basis, it is estimated that service business for fiscal 1999 will amount to around 1.75 trillion yen, exceeding the initial target. The figure for fiscal 2003 will be 2.6 trillion yen, 100 billion yen more than the initial target.
Totaled 2,600 billion yen in FY2003 (+850 billion yen)
Information systems: 1,060 billion yen in FY2003 (+520 billion yen) Of the 300 billion yen to be spent at an early stage in the plan's implementation on acquisitions, equity participations and alliances, upwards of 80% will be channeled into information systems as a core sector. In addition, over the four-year period the systems/services workforce will be expanded by some 7,500 to establish a solid foundation. Major items:
(1) SI solutions services (including industry-specific services): 630 billion yen in FY2003 (+192 billion yen)
Hitachi will steadily expand its business in SI services tailored to the needs of specific industries seeking to leverage the Internet, such as Internet-based electronic financial markets and the so-called "super cyber government" as well as SI services for small and medium-sized enterprises
(2) Internet services (B to B business): 100 billion yen in FY2003 (+56 billion yen) There will be a focus on consolidating network capabilities, including those of affiliated companies, for promoting business under a unified brand. For this, next April a company will be set up to run the shared network infrastructure of the Hitachi Group. In addition, Hitachi will develop applications for B to B businesses that utilize this infrastructure and expand its application service provider (ASP) business targeted at companies. Forty billion yen will be invested by fiscal 2003, when annual sales of 100 billion yen are expected to be achieved.
(3) Internet services (B to C business): 40 billion yen in FY2003 (+40 billion yen) In February 2000, a division will be established within Hitachi, Ltd. for promoting B to C business. 10 billion yen will be invested by fiscal 2003, in which year sales of 40 billion yen will be achieved.
(4) Outsourcing services: 92 billion yen in FY2003 (+56 billion yen) Hitachi will expand its business in such areas as outsourcing for major corporations seeking to introduce 401-K-type plans and the like as well as joint-type outsourcing for public organizations and financial institutions.
Finance / Transportation: 510 billion yen in FY2003 (+110 billion yen) These sectors will be strengthened using risk management operations (securities, fund management, etc.), outsourcing (financial business support services, card network business, customer management agency systems) and other new businesses.
Maintenance / Social infrastructures: 1,030 billion yen in FY2003(+220 billion yen) The intelligent transport systems (ITS), energy service company (ESCO) and environmental solution businesses will be strengthened using IT and the consolidated expertise of affiliated companies.
3-2: Concentrating Company resources to strengthen the solutions business
Utilizing the company's financial capabilities, a total of 300 billion yen is to be concentrated on acquisitions, equity participations and alliances, with the emphasis on the information sector
For its transformation into a solutions provider, in deploying Company resources, Hitachi will prioritize R&D and plant and equipment investment in the solutions and leading-edge devices business segments, and effectively utilize outside resources. For this, at an early stage in the plan's implementation, the investment of some 300 billion yen is being planned for acquisitions, equity participations and alliances: currently some 60 such items are being studied. 80% or more of the total will go to information related business sectors.
At the same time, top management will select products to be pruned, and the Company will stop manufacturing such products within one year. This will accelerate Hitachi's move out of unprofitable sectors.
Information Systems & Electronics:
Priority allocation of management resources